A Composite Scheme of Compromise and Arrangement between the company (and its lenders and shareholders) (hereinafter referred to as Scheme) and Nirma Limited (and its shareholders) was approved by the Honble High Court of Gujarat vide its order dated 1st March, 2007. The scheme, amongst others, provided demerger of industrial undertaking of the company located at Village Sachana, Tal. Viramgam, District Ahmedabad (hereinafter referred to as "Demerged Undertaking") on a going-concern basis with all its assets and liabilities as defined in the scheme. The scheme has become effective from 7th March, 2007 as per its provisions. The appointed date for demerger is 1st December, 2004.

As the scheme has become effective with effect from the appointed date for demerger, the Demerged Undertaking stands transferred to and vest in as a going- concern to Nirma Limited at its book values. Accordingly, assets and liabilities of demerged undertaking have been transferred to Nirma Limited and excess of assets over liabilities of Rs. 43904.56 lacs has been adjusted against Rs.30000.00 lacs out of Share Premium Account, Rs.375.00 lacs of Capital Redemption Reserve, Rs. 166.20 lacs of Capital Reserve and balance of Rs. 13363.36 lacs has been transferred to Profit & Loss Account as per the provisions of the Scheme.

As per the provisions of the Scheme, the results of the operations of business of the Demerged Undertaking for the period from the appointed date for demerger (1st December, 2004) till the effective date (7th March, 2007) of the scheme, have also vested in Nirma Limited. Accordingly necessary effects in respect of above have been given in the books of accounts of the company during the year.

2. Reconstruction and Compromise:

In accordance with the Composite Scheme of Compromise & Arrangement, which has been approved by the Honble High Court of Gujarat, effects of compromise with lenders and reconstruction in accordance with the approved scheme have been given in the accounts as under: Reconstruction:

3) The company has no plans ,of carrying out any operations in future. The assets of Pharma plant of the company at Rajpur has suspended operations since May, 2005 and its possession is not with the company ( refer note-5 below). However, the accounts of the Company have been prepared on going concern basis.

4) Contingent liability not provided for:

a) Disputed liabilities for Custom duty and Excise duty : Rs. 373.60 lacs (previous year Rs. 2385.06 lacs)

b) Claims against the company not acknowledged as debts: Rs. Nil (previous year Rs. 470.54 lacs.)

5) Depreciation on fixed assets of demerged undertaking for the period from 1st April, 2006 to 7thi March, 2007 has not been provided for however, this has no effect on loss for the year.

6) The Fixed Assets as appeared in the Schedule of Fixed Assets (Schedule: 5) as at 31st March, 2007 are of pharmaceutical plant of the company located at Village: Rajpur, District Mehsana except the data processing equipment having net book value of Rs. 0.43 lacs In terms of the provisions of Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act. 2002, Asset Reconstruction Company of India Limited (ARCIL) has taken over the possession of this plant in July, 2005 and in March, 2007, it has issued notice for sale of assets of this plant. As the company is not having possession of the assets of thisplant, no physical verification of the assets of the plant could be carried out. The management of the company is of the opinion that there is an impairment of the assets of this plant, however, such loss has not been estimated or determined and, therefore, no provision for loss on account of impairment of assets has been made in the accounts. To this extent, the company has not complied with the Accounting Standard 28, Impediment of Assets.

7. Liability for Sales Tax:

For various years from F.Y. 1992-93 to F.Y.2002-03 in respect of Pharmaceutical plant of the company at Rajpur, against the liability of Sales Tax, interest and penalties aggregating to Rs. 576.97 lacs (net of liability transferred to the resultant company on demerger of the Sachana undertaking pursuant to the scheme of Compromise & Arrangement), provision for Rs. 20.06 lacs only has been made in the books of accounts of the company.

8. No provision for interest on secured and unsecured loans as well as interest payable on the assets taken on lease for Co-generation Power Plant has been made in the accounts, the estimated liability of which aggregates to Rs. 2401 .60 lacs including Rs. 1200.80 lacs for F.Y. 2006-07.

9. The company had allotted 100 lacs equity shares in lieu of warrants of Rs.1O0/- each as per the resolution of the Extra Ordinary General Meeting held on 11.02.1994, out of which Rs.90/- is in respect of premium. Amount received till 31st March 2004 of Rs.4125.95 lacs is adjusted to share capital Rs.819.26 lacs and share premium Rs.3306.69 lacs. The balance amount of Rs.5874.05 lacs is in respect of 90.37 lacs shares will be payable as per the revised schedule commencing on or before 31st December, 2007 as decided by the Board of Directors at its meeting held on 17-11-2005.

10. Details of securities for Secured Loans:

Loans and borrowings obtained by the company from various banks, financial institutions and by way of debentures were secured by assets of Sachana undertaking as well as assets of other undertakings (residual undertaking) of the company. Upon compromise with lenders and demerger of the Sachana undertaking under Composite Scheme of Compromise and Arrangement as described in note-1 above, outstanding amounts of secured loans in Scheduie-3 as at 31st March, 2007 are in accordance with terms of compromise and are in respect of residual undertaking as provided in the scheme. No fresh documents or deeds with lenders have been executed by the company after approval of the scheme. As per the scheme, upon receipt by the lenders of the entire sale proceeds (net of expenses) of Rajpur Unit, when sold, the residual liability of the company relating to lenders shall be deemed to be discharged in full. In view of this, security interest, charge and encumbrance of the lenders are on all the assets, both immovable and moveable, of the company.

Details of security as at 31st March, 2006 are as under:

A. Term Loans from Financial Institutions

Term loans from The Industrial Credit and Investment Corporation of India Limited (Rs 11960.64 lacs),The Industrial Finance Corporation of India Limited (Rs.13514.31 lacs), Life Insurance Corporation of India (Rs. 1900 lacs) and Industrial Development Bank of India (Rs. 4159 lacs) are secured by way of first pari passu charge on all the movable and immovable, present and future assets of the Company excluding assets which are exclusively Term loans from The Industrial Credit and Investment Corporation of India Limited (Rs1846.29 lacs), is secured by way of first pari passu charges on all the movable and immovable, present and future assets of the company excluding assets which are exclusively charged to other banks/institutions- It further secured by assignment of specific receivables.

B Term Loans from Banks

1. Term Loans from Dena Bank (Rs.0.25 lacs),State Bank of Mysore

(Rs. 1145 lacs) and State Bank of Travancore (Rs. 1810 lacs) are secured by way of hypothecation of imported and indigenous equipment purchased out of the said loan.

2 Term loan from The Hongkong & Shanghai Banking Corporation Limited (Rs. 2454.69 lacs) and Dresdner Bank (Rs. 7005.80) is secured by way of first pari passu charge on all the movable, present and future assets of the Company excluding assets which are exclusively charged to other banks/institutions.

3 Term Loan from Global Trust Bank (Rs.1250 lakhs) is secured by way of mortgage of a property owned by a company.

C Term Loans from Companies

1 Term Loan from GE Capital Services India Limited (Rs. 3184.93 lacs) is secured by exclusive charge by way of hypothecation of imported and indigenous equipment purchased out of the said loan.

2 Term Loan from M/s. Astramed Technologies Limited (Rs.1136.64 lakh) is secured by way of second pan pasu charge over the Companys fixed assets excluding assets which are exclusively charged to banks / institutions.

D Foreign Currency Loan

1 The foreign currency loan of USD 23.19 million from Standard Chartered Bank and group of International Banks is secured by way of first pari pasu charge on the entire movable and the immovable, present and future assets of the Company excluding assets which are exclusively charged to other banks/institutions.

E Debentures

1 Partly Convertible Debentures are secured by way of second charge over all the immovable/movable properties of the Company subject to prior charges in favour of financial institutions and banks for their loans.

2 Non-Convertible Debentures placed with LIC Mutual Fund are to be secured by way of first charge on all the immovable and movable properties of the Company excluding assets which are exclusively charged to other banks / financial institutions.

3 18.75% Non-convertible Debentures are secured by way of a second charge on all the movable and immovable assets of the Company subject to prior charges in favour of financial institutions and banks for their loans.

4 Non-Convertible Debentures placed with IDBi Mutual Fund and ICICI Limited are secured by way of first charge on all the movable and immovable, present and future assets of the Company excluding assets which are exclusively charged to other banks/institutions.

5 19.5% Non-Convertible Debentures placed with LIC, GIC & subsidiaries are secured by way of first charge on all movable & immovable assets of company excluding assets which are exclusively cnarged to other banks/institutions.

6 15.5% Non Convertible Debentures placed with Dena Bank are secured by way of exclusive charge on specific assets of the company.

F Working Capital Loans

Loans for working capital from banks are secured by way of hypothecation of entire stocks of raw material stock in process, finished goods, stores and spares and packing materials pertaining to the business of the Company and all the book debts of the Company. The Loans from Bank of Baroda, State Bank of India and Dena Bank are further secured by way of third charge on fixed assets of the company.

11. Deferred Tax Assets arising mainly on account of unabsorbed depreciation and carried forward losses have not been considered for recognition as there is no virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.

14. Unsecured Loans include amount to be credited to Investor Education and Protection Fund - Matured & Unclaimed Fixed Deposits and Interest thereon: Rs.13.35 lacs. (Previous year: Rs.10.85).

15. a) Sundry Creditors (Schedule 11 to the Balance Sheet) : includes Rs.Nil (previous year Rs. Nil), due to small scale Industrial undertakings.

b) The above information has been compiled in respect of parties to the extent to which they could be identified as small scale and ancillary undertakings on the basis of information available with the company and has been relied upon by auditors.

16. In the opinion of the company, the company has only one segment viz., drugs and pharmaceuticals, hence no separate disclosure of segment wise information has been made.

17. No provision for advances of Rs. 2.00 lacs and loan to a subsidiary company of Rs. 52.01 lacs has been made in the accounts which are considered as doubtful of recovery.